Legislation May Make New York City’s HDFC Tax Benefits Permanent

This article will address the current and proposed real estate tax benefits available to Housing Development Fund Corporations (HDFCs) in New York City, including the impending expiration of the Division of Alternative Management Programs (DAMP) tax exemption and pending legislation aimed at preserving long-term affordability. Understanding the proposed statutory framework governing HDFCs is critical for boards, lenders, and shareholders seeking to maintain affordability while ensuring the financial stability of these cooperatives in the city’s evolving housing market.

HDFC Background

HDFCs are limited-equity housing cooperatives established in New York City pursuant to Article XI of the New York Private Housing Finance Law. They were designed to create and preserve permanently affordable homeownership opportunities for low- and moderate-income residents.

HDFCs emerged in response to New York City’s fiscal crisis of the 1970s. During that decade, the city lost nearly 1 million residents, many of them middle-class families fleeing to the suburbs. In 1975, President Gerald Ford famously refused to provide federal aid to halt the city’s economic collapse. Ford to City: Drop Dead, N.Y. Daily News (Oct. 30, 1975, reprinted Oct. 29, 2015). Entire neighborhoods, particularly in Harlem, the South Bronx and the Lower East Side, were devastated by arson, neglect, and mass abandonment. Furman Center for Real Estate & Urban Policy, Housing Policy in New York City: A Brief History, Working Paper No. 06-01 (Apr. 2006). Landlords, faced with rising maintenance costs and declining rent rolls, often found it more profitable to torch their buildings for insurance money than to continue operating them. See Id. As a result, buildings stood gutted and vacant, contributing to a spiraling cycle of disinvestment and blight.

In 1977, shortly after taking office, President Jimmy Carter traveled to Charlotte Street in the South Bronx, where he witnessed firsthand the devastation that had overtaken New York City. By that time, the city had already taken possession of more than 100,000 abandoned housing units through tax foreclosure. James Barron, Jimmy Carter Visits the Bronx on Final Tour, N.Y. Times (Jan. 9, 2025). Lacking both the resources and the appetite to manage these buildings long-term, the city had inadvertently become one of the nation’s largest residential landlords. To confront this crisis, it began experimenting with alternative ownership models that could both relieve it of this burden and foster affordable housing and community revitalization.

To help stabilize and transfer city-owned buildings into the hands of those living in them, New York City launched the Tenant Interim Lease (TIL) Program in 1978. The TIL Program was created to assist tenants in city-owned, rent-stabilized buildings, many of which had been abandoned by landlords and taken over through tax foreclosure. Under TIL, tenants were organized into interim boards, trained in cooperative governance, and provided with technical assistance and rehabilitation loans. After meeting specific benchmarks, such as forming a functioning board and demonstrating financial viability, tenants were given the opportunity to purchase their building for a nominal fee, often as little as $250 per unit, and convert it into an HDFC.

These HDFCs offered a transformative path to affordable homeownership for thousands of families. Residents who had once faced eviction or uninhabitable living conditions suddenly became cooperative shareholders with a stake in their community’s future. The model was revolutionary: Instead of being displaced by gentrification or market pressures, tenants were empowered to take control of their housing. Today, there are more than 1,100 HDFC cooperatives citywide, collectively housing more than 25,000 low-income households. What is an HDFC Coop?, Urban Homesteading Assistance Board (UHAB). They are especially concentrated in neighborhoods that were hardest hit by disinvestment in the 1970s and 1980s, including Harlem, the Lower East Side, and parts of the South Bronx and Central Brooklyn. HDFCs remain one of the last bastions of deep affordability in a city where homeownership is increasingly out of reach for working-class New Yorkers.

DAMP Tax Exemption

To further incentivize the creation of HDFCs, in 1989 the New York City Council, pursuant to Section 577 of the Private Housing Finance Law, enacted a partial real estate tax exemption specifically for HDFCs. This exemption, commonly known as the DAMP tax exemption, is a cornerstone of HDFC affordability. By substantially reducing property tax obligations, the DAMP exemption allows HDFCs to maintain lower maintenance charges, thereby preserving affordability for low- and moderate-income shareholders.

A condition of the DAMP tax exemption is that the building must remain an HDFC for the duration of the exemption period. Accordingly, if an HDFC opts out of the HDFC statutory framework and converts to market-rate housing, it would be required to forfeit the DAMP tax exemption.

In 2025, the DAMP tax exemption caps the assessed valuation of each dwelling unit at $12,542. For example, a 59-unit co-op in Harlem that is eligible to receive the DAMP tax exemption will pay approximately $90,000 in property taxes for the 2025 tax year, assuming the HDFC is classified as a Class 2 property, which carries a 12.5% tax rate for the 2025 tax year. Without the DAMP tax exemption, we estimate that this HDFC would pay the city in excess of $175,000. Accordingly, the DAMP tax exemption provides significant financial relief to qualifying HDFCs. However, despite this important tool for preserving HDFC affordability, the DAMP tax exemption will expire in 2029.

Proposed NY State Legislation

Currently, there is legislation pending with the New York State legislature to continue providing a tax exemption/abatement to HDFCs that meet certain criteria that would make the DAMP tax exemption permanent. N.Y. Assembly. B. A2707-A, the Housing Development Fund Company Self-Determination, Preservation and Affordability Act, 2025–2026 Leg., Reg. Sess. (N.Y. 2025). The proposed legislation would allow HDFCs to receive the greater of (i) the DAMP tax exemption or (ii) twice the tax abatement available to most market-rate co-ops and condominiums under §467-a of New York’s Real Property Tax Law, from which HDFCs are currently excluded. Section 467-a provides a 17.5%–28.1% abatement depending on the assessed value of the apartment. This enhanced benefit is designed to, among other things, encourage HDFCs to remain income-restricted cooperatives. Id.

To qualify for the DAMP tax exemption, the proposed legislation would require participating HDFCs to file an annual report to the Department of Housing Preservation and Development (HPD) that demonstrates that the HDFC has complied with the statute’s affordability requirements. Id. Under the proposed legislation, affordability would be determined at the option of each HDFC, using one of two tests. An HDFC may either: (i) limit eligibility to households whose probable aggregate annual income does not exceed six times the annual rent (including the cost or value of heat, light, water, and cooking fuel) of the dwelling, with the ratio increased to seven-to-one for households with three or more dependents; or (ii) cap eligibility based on income, requiring that the purchaser’s income not exceed 165% of area median income, as determined by the US Department of Housing and Urban Development. Id. HPD has the right to suspend or revoke the tax exemption and tax abatement if HPD determines that the participating HDFC has willfully not complied with the affordability requirements. Id. In addition, the legislation extends the authority of the city to offer special tax relief to HDFCs in severe fiscal distress and that are in danger of tax foreclosure because of unpaid real estate taxes. Id. Under these circumstances, such tax relief is conditioned on the HDFC entering into a special regulatory agreement under which the city, either directly or through a third-party administrator, will monitor compliance. Id.

Key Takeaways

Without the benefit of capped real estate taxes, monthly maintenance charges paid by shareholders will see a significant increase. As those charges rise, the value of HDFC shares will decline. Many financial institutions have already expressed reluctance to lend to HDFCs given the uncertainty surrounding the scheduled expiration of the tax exemption. The proposed legislation aims to remove this uncertainty by establishing a permanent tax incentive. Still, some HDFCs may elect to absorb higher real estate taxes in order to avoid future regulatory restrictions. With the DAMP exemption not set to expire for another five years, the legislation remains subject to change, and shareholders have time to consult with elected officials and legal counsel regarding the future of their cooperatives.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Ben Flavin is a partner and Andrew Braverman is an associate at Braverman Greenspun P.C. in New York.

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